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Exchange rates (Fixed exchange rates (A devaluation (Equities (Increase…
Exchange rates
Fixed exchange rates
A devaluation
Bonds
Switch to equities
Equities
Increase exposure to: Export earnings
Decrease exposure to: Domestic and import earnings
Handle inflation
Handle expansionary monetary policy
Economic performance
Sustain balance of payment deficit
Floating exchange rates
Handle infation
Do not import inflation -> instead currency will appreciate
Has its own independent currency and has to conduct its own monetary policy to handle inflation
Do not export inflation -> instead currency will depreciate
Handle expansionary monetary policy
Economic performance
Sustain balance of payment deficit